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COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 172129

Petitioner,

Present:

- versus -

QUISUMBING, J., Chairperson,

MIRANT PAGBILAO CORPORATION (Formerly


SOUTHERN ENERGY QUEZON, INC.),

CARPIO MORALES,
TINGA,

Respondent.
VELASCO, JR., and
BRION, JJ.
Promulgated:
September 12, 2008

x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 assailing and seeking to set aside the Decision 1 dated December 22, 2005 of the Court of Appeals (CA) in
CA-G.R. SP No. 78280 which modified the March 18, 2003 Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 6133 entitled Mirant Pagbilao Corporation
(Formerly Southern Energy Quezon, Inc.) v. Commissioner of Internal Revenue and ordered the Bureau of Internal Revenue (BIR) to refund or issue a tax credit certificate
(TCC) in favor of respondent Mirant Pagbilao Corporation (MPC) in the amount representing its unutilized input value added tax (VAT) for the second quarter of 1998. Also
assailed is the CAs Resolution3 of March 31, 2006 denying petitioners motion for reconsideration.
The Facts
MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell (Phil.) Corporation, is a domestic firm engaged in the generation of power which it sells
to the National Power Corporation (NPC). For the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant, which appears to have
been undertaken from 1993 to 1996, MPC secured the services of Mitsubishi Corporation (Mitsubishi) of Japan.
Under Section 134 of Republic Act No. (RA) 6395, the NPCs revised charter, NPC is exempt from all taxes. In Maceda v. Macaraig,5 the Court construed the exemption as
covering both direct and indirect taxes.
In the light of the NPCs tax exempt status, MPC, on the belief that its sale of power generation services to NPC is, pursuant to Sec. 108(B)(3) of the Tax Code, 6 zero-rated
for VAT purposes, filed on December 1, 1997 with Revenue District Office (RDO) No. 60 in Lucena City an Application for Effective Zero Rating. The application covered the
construction and operation of its Pagbilao power station under a Build, Operate, and Transfer scheme.
Not getting any response from the BIR district office, MPC refiled its application in the form of a "request for ruling" with the VAT Review Committee at the BIR national office

on January 28, 1999. On May 13, 1999, the Commissioner of Internal Revenue issued VAT Ruling No. 052-99, stating that "the supply of electricity by Hopewell Phil. to the
NPC, shall be subject to the zero percent (0%) VAT, pursuant to Section 108 (B) (3) of the National Internal Revenue Code of 1997."
It must be noted at this juncture that consistent with its belief to be zero-rated, MPC opted not to pay the VAT component of the progress billings from Mitsubishi for the
period covering April 1993 to September 1996for the E & M Equipment Erection Portion of MPCs contract with Mitsubishi. This prompted Mitsubishi to advance the VAT
component as this serves as its output VAT which is essential for the determination of its VAT payment. Apparently, it was only on April 14, 1998 that MPC paid Mitsubishi
the VAT component for the progress billings from April 1993 to September 1996, and for which Mitsubishi issued Official Receipt (OR) No. 0189 in the aggregate amount of
PhP 135,993,570.
On August 25, 1998, MPC, while awaiting approval of its application aforestated, filed its quarterly VAT return for the second quarter of 1998 where it reflected an input VAT
of PhP 148,003,047.62, which included PhP 135,993,570 supported by OR No. 0189. Pursuant to the procedure prescribed in Revenue Regulations No. 7-95, MPC filed on
December 20, 1999 an administrative claim for refund of unutilized input VAT in the amount of PhP 148,003,047.62.
Since the BIR Commissioner failed to act on its claim for refund and obviously to forestall the running of the two-year prescriptive period under Sec. 229 of the National
Internal Revenue Code (NIRC), MPC went to the CTA via a petition for review, docketed as CTA Case No. 6133.
Answering the petition, the BIR Commissioner, citing Kumagai-Gumi Co. Ltd. v. CIR,7 asserted that MPCs claim for refund cannot be granted for this main reason: MPCs
sale of electricity to NPC is not zero-rated for its failure to secure an approved application for zero-rating.
Before the CTA, among the issues stipulated by the parties for resolution were, in gist, the following:
1. Whether or not [MPC] has unapplied or unutilized creditable input VAT for the 2nd quarter of 1998 attributable to zero-rated sales to NPC which are proper subject for
refund pursuant to relevant provisions of the NIRC;
2. Whether the creditable input VAT of MPC for said period, if any, is substantiated by documents; and
3. Whether the unutilized creditable input VAT for said quarter, if any, was applied against any of the VAT output tax of MPC in the subsequent quarter.
To provide support to the CTA in verifying and analyzing documents and figures and entries contained therein, the Sycip Gorres & Velayo (SGV), an independent auditing
firm, was commissioned.
The Ruling of the CTA
On the basis of its affirmative resolution of the first issue, the CTA, by its Decision dated March 18, 2003, granted MPCs claim for input VAT refund or credit, but only for the
amount of PhP 10,766,939.48. The fallo of the CTAs decision reads:
In view of all the foregoing, the instant petition is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED to REFUND or in the alternative, ISSUE A TAX
CREDIT CERTIFICATE in favor of the petitioner its unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter of 1998 in the
reduced amount of P10,766,939.48, computed as follows:
Claimed Input VAT P148,003,047.62
Less: Disallowances
a.) As summarized by SGV & Co. in its initial report (Exh. P)

I. Input Taxes on Purchases of Services:


1. Supported by documents
other than VAT Ors P 10,629.46
2. Supported by photocopied VAT OR 879.09
II. Input Taxes on Purchases of Goods:
1. Supported by documents other than
VAT invoices 165,795.70
2. Supported by Invoices with TIN only 1,781.82
3. Supported by photocopied VAT
invoices 3,153.62
III. Input Taxes on Importation of Goods:
1. Supported by photocopied documents
[IEDs and/or Bureau of Customs
(BOC) Ors] 716,250.00
2. Supported by brokers computations 91,601.00 990,090.69
b.) Input taxes without supporting documents as
summarized in Annex A of SGV & Co.s
supplementary report (CTA records, page 134) 252,447.45
c.) Claimed input taxes on purchases of services from
Mitsubishi Corp. for being substantiated by dubious OR 135,996,570.008
Refundable Input P10,766,939.48
SO ORDERED.9

Explaining the disallowance of over PhP 137 million claimed input VAT, the CTA stated that most of MPCs purchases upon which it anchored its claims for refund or tax
credit have not been amply substantiated by pertinent documents, such as but not limited to VAT ORs, invoices, and other supporting documents. Wrote the CTA:
We agree with the above SGV findings that out of the remaining taxes of P136,246,017.45, the amount of P252,477.45 was not supported by any document and should
therefore be outrightly disallowed.
As to the claimed input tax of P135,993,570.00 (P136,246,017.45 less P252,477.45 ) on purchases of services from Mitsubishi Corporation, Japan, the same is found to be
of doubtful veracity. While it is true that said amount is substantiated by a VAT official receipt with Serial No. 0189 dated April 14, 1998 x x x, it must be observed, however,
that said VAT allegedly paid pertains to the services which were rendered for the period 1993 to 1996. x x x
The Ruling of the CA
Aggrieved, MPC appealed the CTAs Decision to the CA via a petition for review under Rule 43, docketed as CA-G.R. SP No. 78280. On December 22, 2005, the CA
rendered its assailed decision modifying that of the CTA decision by granting most of MPCs claims for tax refund or credit. And in a Resolution of March 31, 2006, the CA
denied the BIR Commissioners motion for reconsideration. The decretal portion of the CA decision reads:
WHEREFORE, premises considered, the instant petition is GRANTED. The assailed Decision of the Court of Tax Appeals dated March 18, 2003 is hereby MODIFIED.
Accordingly, respondent Commissioner of Internal Revenue is ordered to refund or issue a tax credit certificate in favor of petitioner Mirant Pagbilao Corporation its
unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter of 1998 in the total amount of P146,760,509.48.
SO ORDERED.10
The CA agreed with the CTA on MPCs entitlement to (1) a zero-rating for VAT purposes for its sales and services to tax-exempt NPC; and (2) a refund or tax credit for its
unutilized input VAT for the second quarter of 1998. Their disagreement, however, centered on the issue of proper documentation, particularly the evidentiary value of OR
No. 0189.
The CA upheld the disallowance of PhP 1,242,538.14 representing zero-rated input VAT claims supported only by photocopies of VAT OR/Invoice, documents other than
VAT Invoice/OR, and mere brokers computations. But the CA allowed MPCs refund claim of PhP 135,993,570 representing input VAT payments for purchases of goods
and/or services from Mitsubishi supported by OR No. 0189. The appellate court ratiocinated that the CTA erred in disallowing said claim since the OR from Mitsubishi was
the best evidence for the payment of input VAT by MPC to Mitsubishi as required under Sec. 110(A)(1)(b) of the NIRC. The CA ruled that the legal requirement of a VAT
Invoice/OR to substantiate creditable input VAT was complied with through OR No. 0189 which must be viewed as conclusive proof of the payment of input VAT. To the CA,
OR No. 0189 represented an undisputable acknowledgment and receipt by Mitsubishi of the input VAT payment of MPC.
The CA brushed aside the CTAs ruling and disquisition casting doubt on the veracity and genuineness of the Mitsubishi-issued OR No. 0189. It reasoned that the issuance
date of the said receipt, April 14, 1998, must be taken conclusively to represent the input VAT payments made by MPC to Mitsubishi as MPC had no real control on the
issuance of the OR. The CA held that the use of a different exchange rate reflected in the OR is of no consequence as what the OR undeniably attests and acknowledges
was Mitsubishis receipt of MPCs input VAT payment.
The Issue
Hence, the instant petition on the sole issue of "whether or not respondent [MPC] is entitled to the refund of its input VAT payments made from 1993 to 1996 amounting to
[PhP] 146,760,509.48."11
The Courts Ruling
As a preliminary matter, it should be stressed that the BIR Commissioner, while making reference to the figure PhP 146,760,509.48, joins the CA and the CTA on their
disposition on the propriety of the refund of or the issuance of a TCC for the amount of PhP 10,766,939.48. In fine, the BIR Commissioner trains his sight and focuses his
arguments on the core issue of whether or not MPC is entitled to a refund for PhP 135,993,570 (PhP 146,760,509.48 - PhP 10,766,939.48 = PhP 135,993,570) it allegedly

paid as creditable input VAT for services and goods purchased from Mitsubishi during the 1993 to 1996 stretch.
The divergent factual findings and rulings of the CTA and CA impel us to evaluate the evidence adduced below, particularly the April 14, 1998 OR 0189 in the amount of
PhP 135,996,570 [for US$ 5,190,000 at US$1: PhP 26.203 rate of exchange]. Verily, a claim for tax refund may be based on a statute granting tax exemption, or, as
Commissioner of Internal Revenue v. Fortune Tobacco Corporation 12 would have it, the result of legislative grace. In such case, the claim is to be construed strictissimi
juris against the taxpayer,13 meaning that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as
the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting statute. On the other hand, a tax refund may
be, as usually it is, predicated on tax refund provisions allowing a refund of erroneous or excess payment of tax. The return of what was erroneously paid is founded on the
principle of solutio indebiti, a basic postulate that no one should unjustly enrich himself at the expense of another. The caveat against unjust enrichment covers the
government.14 And as decisional law teaches, a claim for tax refund proper, as here, necessitates only the preponderance-of-evidence threshold like in any ordinary civil
case.15
We apply the foregoing elementary principles in our evaluation on whether OR 0189, in the backdrop of the factual antecedents surrounding its issuance, sufficiently proves
the alleged unutilized input VAT claimed by MPC.
The Court can review issues of fact where there are
divergent findings by the trial and appellate courts
As a matter of sound practice, the Court refrains from reviewing the factual determinations of the CA or reevaluate the evidence upon which its decision is founded. One
exception to this rule is when the CA and the trial court diametrically differ in their findings, 16 as here. In such a case, it is incumbent upon the Court to review and determine
if the CA might have overlooked, misunderstood, or misinterpreted certain facts or circumstances of weight, which, if properly considered, would justify a different
conclusion.17 In the instant case, the CTA, unlike the CA, doubted the veracity of OR No. 0189 and did not appreciate the same to support MPCs claim for tax refund or
credit.
Petitioner BIR Commissioner, echoing the CTAs stand, argues against the sufficiency of OR No. 0189 to prove unutilized input VAT payment by MPC. He states in this
regard that the BIR can require additional evidence to prove and ascertain payment of creditable input VAT, or that the claim for refund or tax credit was filed within the
prescriptive period, or had not previously been refunded to the taxpayer.
To bolster his position on the dubious character of OR No. 0189, or its insufficiency to prove input VAT payment by MPC, petitioner proffers the following arguments:
(1) The input tax covered by OR No. 0189 pertains to purchases by MPC from Mitsubishi covering the period from 1993 to 1996; however, MPCs claim for tax refund or
credit was filed on December 20, 1999, clearly way beyond the two-year prescriptive period set in Sec. 112 of the NIRC;
(2) MPC failed to explain why OR No. 0189 was issued by Mitsubishi (Manila) when the invoices which the VAT were originally billed came from the Mitsubishis head office
in Japan;
(3) The exchange rate used in OR No. 0189 was pegged at PhP 26.203: USD 1 or the exchange rate prevailing in 1993 to 1996, when, on April 14, 1998, the date OR No.
0189 was issued, the exchange rate was already PhP 38.01 to a US dollar;
(4) OR No. 0189 does not show or include payment of accrued interest which Mitsubishi was charging and demanded from MPC for having advanced a considerable
amount of VAT. The demand, per records, is embodied in the May 12, 1995 letter of Mitsubishi to MPC;
(5) MPC failed to present to the CTA its VAT returns for the second and third quarters of 1995, when the bulk of the VAT payment covered by OR No. 0189specifically PhP
109,329,135.17 of the total amount of PhP 135,993,570was billed by Mitsubishi, when such return is necessary to ascertain that the total amount covered by the receipt
or a large portion thereof was not previously refunded or credited; and
(6) No other documents proving said input VAT payment were presented except OR No. 0189 which, considering the fact that OR No. 0188 was likewise issued by

Mitsubishi and presented before the CTA but admittedly for payments made by MPC on progress billings covering service purchases from 1993 to 1996, does not clearly
show if such input VAT payment was also paid for the period 1993 to 1996 and would be beyond the two-year prescriptive period.
The petition is partly meritorious.
Belated payment by MPC of its obligation for creditable input VAT
As no less found by the CTA, citing the SGVs report, the payments covered by OR No. 0189 were for goods and service purchases made by MPC through the progress
billings from Mitsubishi for the period covering April 1993 to September 1996for the E & M Equipment Erection Portion of MPCs contract with Mitsubishi. 18 It is likewise
undisputed that said payments did not include payments for the creditable input VAT of MPC. This fact is shown by the May 12, 1995 letter 19 from Mitsubishi where, as
earlier indicated, it apprised MPC of the advances Mitsubishi made for the VAT payments, i.e., MPCs creditable input VAT, and for which it was holding MPC accountable
for interest therefor.
In net effect, MPC did not, for the VATable MPC-Mitsubishi 1993 to 1996 transactions adverted to, immediately pay the corresponding input VAT. OR No. 0189 issued on
April 14, 1998 clearly reflects the belated payment of input VAT corresponding to the payment of the progress billings from Mitsubishi for the period covering April 7, 1993 to
September 6, 1996. SGV found that OR No. 0189 in the amount of PhP 135,993,570 (USD 5,190,000) was duly supported by bank statement evidencing payment to
Mitsubishi (Japan).20 Undoubtedly, OR No. 0189 proves payment by MPC of its creditable input VAT relative to its purchases from Mitsubishi.
OR No. 0189 by itself sufficiently proves payment of VAT
The CA, citing Sec. 110(A)(1)(B) of the NIRC, held that OR No. 0189 constituted sufficient proof of payment of creditable input VAT for the progress billings from Mitsubishi
for the period covering April 7, 1993 to September 6, 1996. Sec. 110(A)(1)(B) of the NIRC pertinently provides:
Section 110. Tax Credits.
A. Creditable Input Tax.
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the
output tax:
(a) Purchase or importation of goods:
xxxx
(b) Purchase of services on which a value-added tax has been actually paid. (Emphasis ours.)
Without necessarily saying that the BIR is precluded from requiring additional evidence to prove that input tax had indeed paid or, in fine, that the taxpayer is indeed entitled
to a tax refund or credit for input VAT, we agree with the CAs above disposition. As the Court distinctly notes, the law considers a duly-executed VAT invoice or OR referred
to in the above provision as sufficient evidence to support a claim for input tax credit. And any doubt as to what OR No. 0189 was for or tended to prove should reasonably
be put to rest by the SGV report on which the CTA notably placed much reliance. The SGV report stated that "[OR] No. 0189 dated April 14, 1998 is for the payment of the
VAT on the progress billings" from Mitsubishi Japan "for the period April 7, 1993 to September 6, 1996 for the E & M Equipment Erection Portion of the Companys contract
with Mitsubishi Corporation (Japan)."21
VAT presumably paid on April 14, 1998
While available records do not clearly indicate when MPC actually paid the creditable input VAT amounting to PhP 135,993,570 (USD 5,190,000) for the aforesaid 1993 to
1996 service purchases, the presumption is that payment was made on the date appearing on OR No. 0189, i.e., April 14, 1998. In fact, said creditable input VAT was

reflected in MPCs VAT return for the second quarter of 1998.


The aforementioned May 12, 1995 letter from Mitsubishi to MPC provides collaborating proof of the belated payment of the creditable input VAT angle. To reiterate,
Mitsubishi, via said letter, apprised MPC of the VAT component of the service purchases MPC made and reminded MPC that Mitsubishi had advanced VAT payments to
which Mitsubishi was entitled and from which it was demanding interest payment. Given the scenario depicted in said letter, it is understandable why Mitsubishi, in its effort
to recover the amount it advanced, used the PhP 26.203: USD 1 exchange formula in OR No. 0189 for USD 5,190,000.
No showing of interest payment not fatal to claim for refund
Contrary to petitioners posture, the matter of nonpayment by MPC of the interests demanded by Mitsubishi is not an argument against the fact of payment by MPC of its
creditable input VAT or of the authenticity or genuineness of OR No. 0189; for at the end of the day, the matter of interest payment was between Mitsubishi and MPC and
may very well be covered by another receipt. But the more important consideration is the fact that MPC, as confirmed by the SGV, paid its obligation to Mitsubishi, and the
latter issued to MPC OR No. 0189, for the VAT component of its 1993 to 1996 service purchases.
The next question is, whether or not MPC is entitled to a refund or a TCC for the alleged unutilized input VAT of PhP 135,993,570 covered by OR No. 0189 which sufficiently
proves payment of the input VAT.
We answer the query in the negative.
Claim for refund or tax credit filed out of time
The claim for refund or tax credit for the creditable input VAT payment made by MPC embodied in OR No. 0189 was filed beyond the period provided by law for such claim.
Sec. 112(A) of the NIRC pertinently reads:
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x. (Emphasis ours.)
The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said
tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112(A), "[P]rescriptive period commences from the close of the taxable
quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued." 22 Thus, when a zero-rated VAT taxpayer
pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The
reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and
given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any
claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998.
Consequently, MPCs claim for refund or tax credit filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the
two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may

xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in
good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of
destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written
claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have
been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim
for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis ours.)
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit.
Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods,
properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated
transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment
angle does not enter the equation.
In Commissioner of Internal Revenue v. Seagate Technology (Philippines), the Court explained the nature of the VAT and the entitlement to tax refund or credit of a zerorated taxpayer:
Viewed broadly, the VAT is a uniform tax x x x levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter,
exchange or lease of goods or properties or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax
being limited only to the value added to such goods, properties or services by the seller, transferor or lessor. It is an indirect tax that may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. As such, it should be understood not in the context of the person or entity that is primarily, directly and
legally liable for its payment, but in terms of its nature as a tax on consumption. In either case, though, the same conclusion is arrived at.
The law that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has been drawn from the tax credit method. Such method
adopted the mechanics and self-enforcement features of the VAT as first implemented and practiced in Europe x x x. Under the present method that relies on invoices, an
entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.
If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed on by the suppliers, no payment is required. It is when the output
taxes exceed the input taxes that the excess has to be paid. If, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter
or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes
shall instead be refunded to the taxpayer or credited against other internal revenue taxes.

xxxx
Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously
results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT
previously charged by suppliers.23 (Emphasis added.)
Considering the foregoing discussion, it is clear that Sec. 112(A) of the NIRC, providing a two-year prescriptive period reckoned from the close of the taxable quarter when
the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to erroneous
payment of taxes.
As a final consideration, the Court wishes to remind the BIR and other tax agencies of their duty to treat claims for refunds and tax credits with proper attention and urgency.
Had RDO No. 60 and, later, the BIR proper acted, instead of sitting, on MPCs underlying application for effective zero rating, the matter of addressing MPCs right, or lack
of it, to tax credit or refund could have plausibly been addressed at their level and perchance freed the taxpayer and the government from the rigors of a tedious litigation.
The all too familiar complaint is that the government acts with dispatch when it comes to tax collection, but pays little, if any, attention to tax claims for refund or exemption.
It is high time our tax collectors prove the cynics wrong.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated December 22, 2005 and the Resolution dated March 31, 2006 of the CA in CA-G.R. SP No. 78280
are AFFIRMED with the MODIFICATION that the claim of respondent MPC for tax refund or credit to the extent of PhP 135,993,570, representing its input VAT payments for
service purchases from Mitsubishi Corporation of Japan for the construction of a portion of its Pagbilao, Quezon power station, is DENIED on the ground that the claim had
prescribed. Accordingly, petitioner Commissioner of Internal Revenue is ordered to refund or, in the alternative, issue a tax credit certificate in favor of MPC, its unutilized
input VAT payments directly attributable to its effectively zero-rated sales for the second quarter in the total amount of PhP 10,766,939.48.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 180345

November 25, 2009

SAN ROQUE POWER CORPORATION, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari, under Rule 45 of the Revised Rules of Court, petitioner San Roque Power Corporation assails the Decision 1 of the Court of Tax Appeals (CTA) En Banc
dated 20 September 2007 in CTA EB No. 248, affirming the Decision2 dated 23 March 2006 of the CTA Second Division in CTA Case No. 6916, which dismissed the claim of petitioner for the
refund and/or issuance of a tax credit certificate in the amount of Two Hundred Forty-Nine Million Three Hundred Ninety-Seven Thousand Six Hundred Twenty Pesos and 18/100
(P249,397,620.18) allegedly representing unutilized input Value Added Tax (VAT) for the period covering January to December 2002.
Respondent, as the Commissioner of the Bureau of Internal Revenue (BIR), is responsible for the assessment and collection of all national internal revenue taxes, fees, and charges, including
the Value Added Tax (VAT), imposed by Section 1083 of the National Internal Revenue Code (NIRC) of 1997. Moreover, it is empowered to grant refunds or issue tax credit certificates in
accordance with Section 112 of the NIRC of 1997 for unutilized input VAT paid on zero-rated or effectively zero-rated sales and purchases of capital goods, to wit:
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated SalesAny VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax,
to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and
Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties
or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis
of the volume of sales.
(B) Capital GoodsA VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent the such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the
importation or purchase was made.
On the other hand, petitioner is a domestic corporation organized under the corporate laws of the Republic of the Philippines. On 14 October 1997, it was incorporated for the sole purpose of
building and operating the San Roque Multipurpose Project in San Manuel, Pangasinan, which is an indivisible project consisting of the power station, the dam, spillway, and other related
facilities.4 It is registered with the Board of Investments (BOI) on a preferred pioneer status to engage in the design, construction, erection, assembly, as well as own, commission, and operate
electric power-generating plants and related activities, for which it was issued the Certificate of Registration No. 97-356 dated 11 February 1998. 5 As a seller of services, petitioner is registered
with the BIR as a VAT taxpayer under Certificate of Registration No. OCN-98-006-007394. 6
On 11 October 1997, petitioner entered into a Power Purchase Agreement (PPA) with the National Power Corporation (NPC) to develop the hydro potential of the Lower Agno River, and to be
able to generate additional power and energy for the Luzon Power Grid, by developing and operating the San Roque Multipurpose Project. The PPA provides that petitioner shall be
responsible for the design, construction, installation, completion and testing and commissioning of the Power Station and it shall operate and maintain the same, subject to the instructions of
the NPC. During the cooperation period of 25 years commencing from the completion date of the Power Station, the NPC shall purchase all the electricity generated by the Power Plant. 7
Because of the exclusive nature of the PPA between petitioner and the NPC, petitioner applied for and was granted five Certificates of Zero Rate by the BIR, through the Chief Regulatory
Operations Monitoring Division, now the Audit Information, Tax Exemption & Incentive Division. Based on these certificates, the zero-rated status of petitioner commenced on 27 September
1998 and continued throughout the year 2002.8

For the period January to December 2002, petitioner filed with the respondent its Monthly VAT Declarations and Quarterly VAT Returns. Its Quarterly VAT Returns showed excess input VAT
payments on account of its importation and domestic purchases of goods and services, as follows 9 :

Period Covered

1st Quarter

Date Filed

April 20, 2002

Particulars

Tax Due for the Quarter (Box 13C)

Amount

P 26,247.27

(January 1, 2002 to
March 31, 2002)

Input Tax carried over from previous qtr (22B)

296,124,429.21

Input VAT on Domestic Purchases for the Qtr

(22D)

95,003,348.91

Input VAT on Importation of Goods for the Qtr

(22F)

20,758,668.00

Total Available Input tax (23)

411,886,446.12

VAT Refund/TCC Claimed (24A)

173,909,435.66

Net Creditable Input Tax (25)

237,977,010.46

VAT payable (Excess Input Tax) (26)

(237,950,763.19)

Tax Payable (overpayment) (28)

2nd Quarter

July 24, 2002

Tax Due for the Quarter (Box 13C)

(237,950,763.19)

P blank

(April 1, 2002 to
June 30, 2002)

Input Tax carried over from previous qtr (22B)

237,950,763.19

Input VAT on Domestic Purchases for the Qtr

(22D)

65,206,499.83

Input VAT on Importation of Goods for the Qtr

(22F)

18,485,758.00

Total Available Input tax (23)

321,643,021.02

VAT Refund/TCC Claimed (24A)

237,950,763.19

Net Creditable Input Tax (25)

83,692,257.83

VAT payable (Excess Input Tax) (26)

(83,692,257.83)

Tax Payable (overpayment) (28)

(83,692,257.83)

3rd Quarter

October 25,
2002

Tax Due for the Quarter (Box 13C)

P blank

(July 1, 2002 to
Input Tax carried over from previous qtr (22B)

September 30, 2002)

199,428,027.47

Input VAT on Domestic Purchases for the Qtr

(22D)

28,924,020.79

Input VAT on Importation of Goods for the Qtr

(22F)

Total Available Input tax (23)

VAT Refund/TCC Claimed (24A)

Net Creditable Input Tax (25)

4th Quarter

January 23,

1,465,875.00

229,817,923.26

Blank

229,817,923.26

VAT payable (Excess Input Tax) (26)

(229,817,923.26)

Tax Payable (overpayment) (28)

(229,817,923.26)

Tax Due for the Quarter (Box 13C)

P 34,996.36

(October 1, 2002 to 2003

Input Tax carried over from previous qtr (22B)

114,082,153.62

December 31, 2002)


Input VAT on Domestic Purchases for the Qtr

(22D)

18,166,330.54

Input VAT on Importation of Goods for the Qtr

(22F)

Total Available Input tax (23)

2,308,837.00

134,557,321.16

VAT Refund/TCC Claimed (24A)

83,692,257.83

Net Creditable Input Tax (25)

50,865,063.33

VAT payable (Excess Input Tax) (26)

(50,830,066.97)

Tax Payable (overpayment) (28)

(50,830,066.97)

On 19 June 2002, 25 October 2002, 27 February 2003, and 29 May 2003, petitioner filed with the BIR four separate administrative claims for refund of Unutilized Input VAT paid for the period
January to March 2002, April to June 2002, July to September 2002, and October to December 2002, respectively. In these letters addressed to the BIR, Carlos Echevarria (Echevarria), the
Vice President and Director of Finance of petitioner, explained that petitioners sale of power to NPC are subject to VAT at zero percent rate, in accordance with Section 108(B)(3) of the
NIRC.10 Petitioner sought to recover the total amount of P250,258,094.25, representing its unutilized excess VAT on its importation of capital and other taxable goods and services for the year
2002, broken down as follows11:

Input
Tax

D
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e
s
t
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( ( (
B CD
) ) )
=
(
B
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(
C
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(
A
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Petitioner amended its Quarterly VAT Returns, particularly the items on (1) Input VAT on Domestic Purchases during the first quarter of 2002; (2) Input VAT on Domestic Purchases for the
fourth quarter of 2002; and (3) Input VAT on Importation of Goods for the fourth quarter of 2002. The amendments read as follows 12 :

P
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(2
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p 3
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(2
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(2
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a
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y
m
e
nt
)
(2
8)

3rd Quarter

October 25, 2002

Tax Due for the Quarter (Box 13C)

P blank

Input Tax carried over from previous qtr (22B)

83,692,257.83

(July 1, 2002 to
September 30,
2002)

Input VAT on Domestic Purchases for the Qtr

(22D)

28,924,020.79

Input VAT on Importation of Goods for the Qtr

(22F)

Total Available Input tax (23)

VAT Refund/TCC Claimed (24A)

Net Creditable Input Tax (25)

1,465,875.00

114,082,153.62

Blank

114,082,153.62

4th Quarter

January 23, 2003

VAT payable (Excess Input Tax) (26)

(114,082,153.62)

Tax Payable (overpayment) (28)

(114,082,153.62)

Tax Due for the Quarter (Box 13C)

P 34,996.36

(October 1, 2002 to
December 31, 2002)

Input Tax carried over from previous qtr (22B)

114,082,153.62

Input VAT on Domestic Purchases for the Qtr

(22D)

17,918,056.50

Input VAT on Importation of Goods for the Qtr

(22F)

Total Available Input tax (23)

1,573,004.00

133,573,214.12

VAT Refund/TCC Claimed (24A)

83,692,257.83

Net Creditable Input Tax (25)

49,880,956.29

VAT payable (Excess Input Tax) (26)

(49,845,959.93)

Tax Payable (overpayment) (28)

(49,845,959.93)

On 30 May 2003 and 31 July 2003, petitioner filed two letters with the BIR to amend its claims for tax refund or credit for the first and fourth quarter of 2002, respectively. Petitioner sought to
recover a total amount ofP249,397,620.18 representing its unutilized excess VAT on its importation and domestic purchases of goods and services for the year 2002, broken down as
follows13 :

O Input
u Tax
t
p
u
t
T
a
x

D
o
m
e
s
t
i
c

I
m
p
o
r
t
a
t
i
P o
u n
r s
c
h
a
s
e
s

E
x
c
e
s
s
I
n
p
u
t
T
a
x

( ( ( (
AB C D
) ) ) )
=
(
B
)
+
(
C

(
A
)

PP
29
65
, ,
21
42
76
. ,
29
78
1
.
6
9

P
2
0
,
7
5
8
,
6
6
8
.
0
0

P
1
1
5
,
8
5
9
,
4
0
2
.
4
2

- 6
5
,
2
0
6
,
4
9
9
.
8
3

1
8
,
1
8
5
,
7
5
8
.
0
0

8
3
,
6
9
2
,
2
5
7
.
8
3

- 2
8
,
9
2
4
,
9
2

1
,
4
6
5
,
8
7
5

3
0
,
3
8
9
,
8
9

0 , 5
. 0 .
7 0 7
9
9

3
4
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9
9
6
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3
6

1
7
,
9
1
8
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0
5
6
.
5
0

1
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5
7
3
,
0
0
4
.
0
0

1
9
,
4
5
6
,
0
6
4
.
1
4

PP
62
10
, 7
2 ,
41
37
. 5
6 ,
35
5
8
.
8
1

P
4
2
,
2
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3
,
3
0
5
.
0
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P
2
4
9
,
3
9
7
,
6
2
0
.
1
8

Respondent failed to act on the request for tax refund or credit of petitioner, which prompted the latter to file on 5 April 2004, with the CTA in Division, a Petition for Review, docketed as CTA
Case No. 6916 before it could be barred by the two-year prescriptive period within which to file its claim. Petitioner sought the refund of the amount ofP249,397,620.18 representing its
unutilized excess VAT on its importation and local purchases of various goods and services for the year 2002. 14
During the proceedings before the CTA Second Division, petitioner presented the following documents, among other pieces of evidence: (1) Petitioners Amended Quarterly VAT return for the
4th Quarter of 2002 marked as Exhibit "A," showing the amount of P42,500,000.00 paid by NTC to petitioner for all the electricity produced during test runs; (2) the special audit report,
prepared by the CPA firm of Punongbayan and Araullo through a partner, Angel A. Aguilar (Aguilar), and the attached schedules, marked as Exhibits "J-2" to "J-21"; (3) Sales Invoices and
Official Receipts and related documents issued to petitioner for the year 2002, marked as Exhibits "J-4-A1" to "J-4-L265"; (4) Audited Financial Statements of Petitioner for the year 2002, with
comparative figures for 2001, marked as Exhibit "K"; and (5) the Affidavit of Echevarria dated 9 February 2005, marked as Exhibit "L". 15

During the hearings, the parties jointly stipulated on the issues involved:
1. Whether or not petitioners sales are subject to value-added taxes at effectively zero percent (0%) rate;
2. Whether or not petitioner incurred input taxes which are attributable to its effectively zero-rated transactions;
3. Whether or not petitioners importation and purchases of capital goods and related services are within the scope and meaning of "capital goods" under Revenue Regulations No. 795;
4. Whether or not petitioners input taxes are sufficiently substantiated with VAT invoices or official receipts;
5. Whether or not the VAT input taxes being claimed for refund/tax credit by petitioner (had) been credited or utilized against any output taxes or (had) been carried forward to the
succeeding quarter or quarters; and
6. Whether or not petitioner is entitled to a refund of VAT input taxes it paid from January 1, 2002 to December 31, 2002 in the total amount of Two Hundred Forty Nine Million Three
Hundred Ninety Seven Thousand Six Hundred Twenty and 18/100 Pesos (P249,397,620.18).
Simply put, the issue is: whether or not petitioner is entitled to refund or tax credit in the amount ofP249,397,620.18 representing its unutilized input VAT paid on importation and purchases of
capital and other taxable goods and services from January 1 to December 31, 2002.
After a hearing on the merits, the CTA Second Division rendered a Decision 16 dated 23 March 2006 denying petitioners claim for tax refund or credit. The CTA noted that petitioner based its
claim on creditable input VAT paid, which is attributable to (1) zero-rated or effectively zero-rated sale, as provided under Section 112(A) of the NIRC, and (2) purchases of capital goods, in
accordance with Section 112(B) of the NIRC. The court ruled that in order for petitioner to be entitled to the refund or issuance of a tax credit certificate on the basis of Section 112(A) of the
NIRC, it must establish that it had incurred zero-rated sales or effectively zero-rated sales for the taxable year 2002. Since records show that petitioner did not make any zero-rated or
effectively-zero rated sales for the taxable year 2002, the CTA reasoned that petitioners claim must be denied. Parenthetically, the court declared that the claim for tax refund or credit based
on Section 112(B) of the NIRC requires petitioner to prove that it paid input VAT on capital goods purchased, based on the definition of capital goods provided under Section 4.112-1(b) of
Revenue Regulations No. 7-95i.e., goods or properties which have an estimated useful life of greater than one year, are treated as depreciable assets under Section 34(F) of the NIRC, and
are used directly or indirectly in the production or sale of taxable goods and services. The CTA found that the evidence offered by petitionerthe suppliers invoices and official receipts and
Import Entries and Internal Revenue Declarations and the audit report of the Court-commissioned Independent Certified Public Accountant (CPA) are insufficient to prove that the importations
and domestic purchases were classified as capital goods and properties entered as part of the "Property, Plant and Equipment" account of the petitioner. The dispositive part of the said
Decision reads:
WHEREFORE, the instant Petition for Review is DENIED for lack of merit. 17
Not satisfied with the foregoing Decision dated 23 March 2006, petitioner filed a Motion for Reconsideration which was denied by the CTA Second Division in a Resolution dated 4 January
2007.18
Petitioner filed an appeal with the CTA En Banc, docketed as CTA EB No. 248. The CTA En Banc promulgated its Decision 19 on 20 September 2007 denying petitioners appeal. The CTA En
Banc reiterated the ruling of the Division that petitioners claim based on Section 112(A) of the NIRC should be denied since it did not present any records of any zero-rated or effectively zerorated transactions. It clarified that since petitioner failed to prove that any sale of its electricity had transpired, petitioner may base its claim only on Section 112(B) of the NIRC, the provision
governing the purchase of capital goods. The court noted that the report of the Court-commissioned auditing firm, Punongbayan & Araullo, dealt specifically with the unutilized input taxes paid
or incurred by petitioner on its local and foreign purchases of goods and services attributable to its zero-rated sales, and not to purchases of capital goods. It decided that petitioner failed to
prove that the purchases evidenced by the invoices and receipts, which petitioner presented, were classified as capital goods which formed part of its "Property, Plant and Equipment,"
especially since petitioner failed to present its books of account. The dispositive part of the said Decision reads:
WHEREFORE, premises considered, the instant petition is hereby DISMISSED. Accordingly, the assailed Decision and Resolution are hereby AFFIRMED. 20
The CTA En Banc denied petitioners Motion for Reconsideration in a Resolution dated 22 October 2007. 21

Hence, the present Petition for Review where the petitioner raises the following errors allegedly committed by the CTA En banc:
I
THE COURT OF TAX APPEALS EN BANC COMMITTED SERIOUS ERROR AND ACTED WITH GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION IN FAILING OR REFUSING TO APPRECIATE THE OVERWHELMING AND UNCONTROVERTED EVIDENCE SUBMITTED BY THE PETITIONER, THUS DEPRIVING
PETITIONER OF ITS PROPERTY WITHOUT DUE PROCESS; AND
II
THE COURT OF TAX APPEALS COMMITTED SERIOUS ERROR AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
RULING THAT THE ABSENCE OF ZERO-RATED SALES BY PETITIONER DURING THE YEAR COVERED BY THE CLAIM FOR REFUND DOES NOT ENTITLE PETITIONER TO A
REFUND OF ITS EXCESS VAT INPUT TAXES ATTRIBUTABLE TO ZERO-RATED SALES, CONTRARY TO PROVISIONS OF LAW.22
The present Petition is meritorious.
The main issue in this case is whether or not petitioner may claim a tax refund or credit in the amount ofP249,397,620.18 for creditable input tax attributable to zero-rated or effectively zerorated sales pursuant to Section 112(A) of the NIRC or for input taxes paid on capital goods as provided under Section 112(B) of the NIRC.
To resolve the issue, this Court must re-examine the facts and the evidence offered by the parties. It is an accepted doctrine that this Court is not a trier of facts. It is not its function to review,
examine and evaluate or weigh the probative value of the evidence presented. However, this rule does not apply where the judgment is premised on a misapprehension of facts, or when the
appellate court failed to notice certain relevant facts which if considered would justify a different conclusion. 23
After reviewing the records, this Court finds that petitioners claim for refund or credit is justified under Section 112(A) of the NIRC which states that:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated SalesAny VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that
such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due
or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.
To claim refund or tax credit under Section 112(A), petitioner must comply with the following criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or effectively
zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not transitional input taxes; (5) the input taxes have not been applied against output taxes during and in the
succeeding quarters; (6) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1)
and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; (8) where there are both zero-rated or effectively
zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the
basis of sales volume; and (9) the claim is filed within two years after the close of the taxable quarter when such sales were made. 24
Based on the evidence presented, petitioner complied with the abovementioned requirements. Firstly, petitioner had adequately proved that it is a VAT registered taxpayer when it presented
Certificate of Registration No. OCN-98-006-007394, which it attached to its Petition for Review dated 29 March 2004 filed before the CTA in Division. Secondly, it is unquestioned that petitioner
is engaged in providing electricity for NPC, an activity which is subject to zero rate, under Section 108(B)(3) of the NIRC. Thirdly, petitioner offered as evidence suppliers VAT invoices or official
receipts, as well as Import Entries and Internal Revenue Declarations (Exhibits "J-4-A1" to "J-4-L265"), which were examined in the audit conducted by Aguilar, the Court-commissioned
Independent CPA. Significantly, Aguilar noted in his audit report (Exhibit "J-2") that of the P249,397,620.18 claimed by petitioner, he identified items with incomplete documentation and errors
in computation with a total amount of P3,266,009.78. Based on these findings, the remaining input VAT of P246,131,610.40 was properly documented and recorded in the books. The said
report reads:

In performing the procedures referred under the Procedures Performed section of this report, no matters came to our attention that cause us to believe that the amount of input VAT applied for
as tax credit certificate/refund of P249,397,620.18 for the period January 1, 2002 to December 31, 2002 should be adjusted except for input VAT claimed with incomplete documentation, those
with various and other exceptions on the supporting documents and those with errors in computation totaling P3,266,009.78, as discussed in the Findings and Results of the Agreed-Upon
Audit Procedures Performed sections of this report. We have also ascertained that the input VAT claimed are properly recorded in the books and, except as specifically identified in the
Findings and Results of the Agreed-Upon Audit Procedures Performed sections of this report, are properly supported by original and appropriate suppliers VAT invoices and/or official
receipts.25
Fourthly, the input taxes claimed, which consisted of local purchases and importations made in 2002, are not transitional input taxes, which Section 111 of the NIRC defines as input taxes
allowed on the beginning inventory of goods, materials and supplies. 26 Fifthly, the audit report of Aguilar affirms that the input VAT being claimed for tax refund or credit is net of the input VAT
that was already offset against output VAT amounting to P26,247.27 for the first quarter of 2002 and P34,996.36 for the fourth quarter of 2002,27 as reflected in the Quarterly VAT Returns.28
The main dispute in this case is whether or not petitioners claim complied with the sixth requirementthe existence of zero-rated or effectively zero-rated sales, to which creditable input taxes
may be attributed. The CTA in Division and en banc denied petitioners claim solely on this ground. The tax courts based this conclusion on the audited report, marked as Exhibit "J-2," stating
that petitioner made no sale of electricity to NPC in 2002. 29Moreover, the affidavit of Echevarria (Exhibit "L"), petitioners Vice President and Director for Finance, contained an admission that
no commercial sale of electricity had been made in favor of NPC in 2002 since the project was still under construction at that time. 30
However, upon closer examination of the records, it appears that on 2002, petitioner carried out a "sale" of electricity to NPC. The fourth quarter return for the year 2002, which petitioner filed,
reported a zero-rated sale in the amount of P42,500,000.00.31 In the Affidavit of Echevarria dated 9 February 2005 (Exhibit "L"), which was uncontroverted by respondent, the affiant stated that
although no commercial sale was made in 2002, petitioner produced and transferred electricity to NPC during the testing period in exchange for the amount ofP42,500,000.00, to wit:32
A: San Roque Power Corporation has had no sale yet during 2002. The P42,500,000.00 which was paid to us by Napocor was something similar to a more cost recovery scheme. The preagreed amount would be about equal to our costs for producing the electricity during the testing period and we just reflected this in our 4th quarter return as a zero-rated sale. x x x.
The Court is not unmindful of the fact that the transaction described hereinabove was not a commercial sale. In granting the tax benefit to VAT-registered zero-rated or effectively zero-rated
taxpayers, Section 112(A) of the NIRC does not limit the definition of "sale" to commercial transactions in the normal course of business. Conspicuously, Section 106(B) of the NIRC, which
deals with the imposition of the VAT, does not limit the term "sale" to commercial sales, rather it extends the term to transactions that are "deemed" sale, which are thus enumerated:
SEC 106. Value-Added Tax on Sale of Goods or Properties.
xxxx
(B) Transactions Deemed Sale.The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. (Our emphasis.)
After carefully examining this provision, this Court finds it an equitable construction of the law that when the term "sale" is made to include certain transactions for the purpose of imposing a
tax, these same transactions should be included in the term "sale" when considering the availability of an exemption or tax benefit from the same revenue measures. It is undisputed that

during the fourth quarter of 2002, petitioner transferred to NPC all the electricity that was produced during the trial period. The fact that it was not transferred through a commercial sale or in
the normal course of business does not deflect from the fact that such transaction is deemed as a sale under the law.
The seventh requirement regarding foreign currency exchange proceeds is inapplicable where petitioners zero-rated sale of electricity to NPC did not involve foreign exchange and consisted
only of a single transaction wherein NPC paid petitioner P42,500,000.00 in exchange for the electricity transferred to it by petitioner. Similarly, the eighth requirement is inapplicable to this
case, where the only sale transaction consisted of an effectively zero-rated sale and there are no exempt or taxable sales that transpired, which will require the proportionate allocation of the
creditable input tax paid.
The last requirement determines that the claim should be filed within two years after the close of the taxable quarter when such sales were made. The sale of electricity to NPC was reported at
the fourth quarter of 2002, which closed on 31 December 2002. Petitioner had until 30 December 2004 to file its claim for refund or credit. For the period January to March 2002, petitioner filed
an amended request for refund or tax credit on 30 May 2003; for the period July 2002 to September 2002, on 27 February 2003; and for the period October 2002 to December 2002, on 31 July
2003.33 In these three quarters, petitioners seasonably filed its requests for refund and tax credit. However, for the period April 2002 to May 2002, the claim was filed prematurely on 25 October
2002, before the last quarter had closed on 31 December 2002.34
Despite this lapse in procedure, this Court notes that petitioner was able to positively show that it was able to accumulate excess input taxes on various importations and local purchases in the
amount of P246,131,610.40, which were attributable to a transfer of electricity in favor of NPC. The fact that it had filed its claim for refund or credit during the quarter when the transfer of
electricity had taken place, instead of at the close of the said quarter does not make petitioner any less entitled to its claim. Given the special circumstances of this case, wherein petitioner was
incorporated for the sole purpose of constructing or operating a power plant that will transfer all the electricity it generates to NPC, there is no danger that petitioner would try to fraudulently
claim input tax paid on purchases that will be attributed to sale transactions that are not zero-rated. Substantial justice, equity and fair play are on the side of the petitioner. Technicalities and
legalisms, however, exalted, should not be misused by the government to keep money not belonging to it, thereby enriching itself at the expense of its law abiding citizens.
Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it,
thereby enriching itself at the expense of its law-abiding citizens. Under the principle of solutio indebiti provided in Art. 2154, Civil Code, the BIR received something "when there [was] no right
to demand it," and thus, it has the obligation to return it. Heavily militating against respondent Commissioner is the ancient principle that no one, not even the State, shall enrich oneself at the
expense of another. Indeed, simple justice requires the speedy refund of the wrongly held taxes. 35
It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC,
from the burden of indirect tax so as to encourage the development of particular industries. Before, as well as after, the adoption of the VAT, certain special laws were enacted for the benefit of
various entities and international agreements were entered into by the Philippines with foreign governments and institutions exempting sale of goods or supply of services from indirect taxes at
the level of their suppliers. Effective zero-rating was intended to relieve the exempt entity from being burdened with the indirect tax which is or which will be shifted to it had there been no
exemption. In this case, petitioner is being exempted from paying VAT on its purchases to relieve NPC of the burden of additional costs that petitioner may shift to NPC by adding to the cost of
the electricity sold to the latter.36
Section 13 of Republic Act No. 6395, otherwise known as the NPC Charter, further clarifies that it is the lawmakers intention that NPC be made completely exempt from all taxes, both direct
and indirect:
Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. - The corporation
shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion. To enable the corporation to pay its indebtedness
and obligations and in furtherance and effective implementation of the policy enunciated in Section 1 of this Act, the corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties
to the Republic of the Philippines, its provinces, cities, municipalities, and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes, and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax and wharfage fees on import of foreign goods, required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the corporation in the generation, transmission, utilization, and sale of electric power.

To limit the exemption granted to the NPC to direct taxes, notwithstanding the general and broad language of the statute will be to thwart the legislative intention in giving exemption from all
forms of taxes and impositions, without distinguishing between those that are direct and those that are not. 37
Congress granted NPC a comprehensive tax exemption because of the significant public interest involved. This is enunciated in Section 1 of Republic Act No. 6395:
Section 1. Declaration of Policy. Congress hereby declares that (1) the comprehensive development, utilization and conservation of Philippine water resources for all beneficial uses, including
power generation, and (2) the total electrification of the Philippines through the development of power from all sources to meet the needs of industrial development and dispersal and the needs
of rural electrification are primary objectives of the nation which shall be pursued coordinately and supported by all instrumentalities and agencies of government, including its financial
institutions.
The ability of the NPC to provide sufficient and affordable electricity throughout the country greatly affects our industrial and rural development. Erroneously and unjustly depriving industries
that generate electrical power of tax benefits that the law clearly grants will have an immediate effect on consumers of electricity and long term effects on our economy.
In the same breath, we cannot lose sight of the fact that it is the declared policy of the State, expressed in Section 2 of Republic Act No. 9136, otherwise known as the EPIRA Law, "to ensure
and accelerate the total electrification of the country;" "to enhance the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution sectors;"
and "to promote the utilization of indigenous and new and renewable energy resources in power generation in order to reduce dependence on imported energy." Further, Section 6 provides
that "pursuant to the objective of lowering electricity rates to end-users, sales of generated power by generation companies shall be value-added tax zero-rated.
Section 75 of said law succinctly declares that "this Act shall, unless the context indicates otherwise, be construed in favor of the establishment, promotion, preservation of competition and
power empowerment so that the widest participation of the people, whether directly or indirectly is ensured."
The objectives as set forth in the EPIRA Law can only be achieved if government were to allow petitioner and others similarly situated to obtain the input tax credits available under the law.
Denying petitioner such credits would go against the declared policies of the EPIRA Law.1 a vv p h i 1
The legislative grant of tax relief (whether in the EPIRA Law or the Tax Code) constitutes a sovereign commitment of Government to taxpayers that the latter can avail themselves of certain tax
reliefs and incentives in the course of their business activities here. Such a commitment is particularly vital to foreign investors who have been enticed to invest heavily in our countrys
infrastructure, and who have done so on the firm assurance that certain tax reliefs and incentives can be availed of in order to enable them to achieve their projected returns on these very
long-term and heavily funded investments. While the governments ability to keep its commitment is put in doubt, credit rating turns to worse; the costs of borrowing becomes higher and the
harder it will be to attract foreign investors. The countrys earnest efforts to move forward will all be put to naught.
Having decided that petitioner is entitled to claim refund or tax credit under Section 112(A) of the NIRC or on the basis of effectively zero-rated sales in the amount of P246,131,610.40, there is
no more need to establish its right to make the same claim under Section 112(B) of the NIRC or on the basis of purchase of capital goods.
Finally, respondent contends that according to well-established doctrine, a tax refund, which is in the nature of a tax exemption, should be construed strictissimi juris against the
taxpayer.38 However, when the claim for refund has clear legal basis and is sufficiently supported by evidence, as in the present case, then the Court shall not hesitate to grant the same. 39
WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the Court of Tax Appeals En Banc dated 20 September 2007 in CTA EB Case No. 248, affirming the Decision
dated 23 March 2006 of the CTA Second Division in CTA Case No. 6916, is REVERSED. Respondent Commissioner of Internal Revenue is ordered to refund, or in the alternative, to issue a
tax credit certificate to petitioner San Roque Power Corporation in the amount of Two Hundred Forty-Six Million One Hundred Thirty-One Thousand Six Hundred Ten Pesos and 40/100
(P246,131,610.40), representing unutilized input VAT for the period 1 January 2002 to 31 December 2002. No costs.
SO ORDERED.

G.R. No. 193007

July 19, 2011

RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners,


vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
ABAD, J.:
May toll fees collected by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief 1 assailing the validity of the impending imposition of value-added tax (VAT) by the
Bureau of Internal Revenue (BIR) on the collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored
the approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of
Representatives. Timbol, on the other hand, claims that she served as Assistant Secretary of the Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the
past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however, in view of the
consistent opposition of Diaz and other sectors to such move. But, upon President Benigno C. Aquino IIIs assumption of office in 2010, the BIR revived the idea and would impose the
challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "users
tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the implementation of the VAT. The Court required the government, represented by respondents Cesar V.
Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal Revenue, to comment on the petition within 10 days from notice. 2 Later, the Court
issued another resolution treating the petition as one for prohibition. 3
On August 23, 2010 the Office of the Solicitor General filed the governments comment. 4 The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees,
including tollway operations, except where the law provides otherwise; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition
of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars. 5
The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements
(TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot limit the States sovereign taxing power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll rates cannot exempt tollway operators from VAT. In any event, it cannot be claimed
that the rights of tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on top of the toll rate. Further, the imposition of VAT on toll fees would have
very minimal effect on motorists using the tollways.

In their reply6 to the governments comment, petitioners point out that tollway operators cannot be regarded as franchise grantees under the NIRC since they do not hold legislative franchises.
Further, the BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an escrow account. But this would be illegal since only the Congress can modify VAT
rates and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero
balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional input tax credit of 2% on beginning
inventory. For this reason, the VAT on toll fees cannot be implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms "franchise grantees" and "sale of services"
under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services; b) will impair the tollway operators right to a reasonable return of
investment under their TOAs; and c) is not administratively feasible and cannot be implemented.
The Courts Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave
their action. The government has sought reconsideration of the Courts resolution, 7 however, arguing that petitioners allegations clearly made out a case for declaratory relief, an action over
which the Court has no original jurisdiction. The government adds, moreover, that the petition does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not
exercise judicial, quasi-judicial, or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate remedy in the
ordinary course of law against the BIR action in the form of an appeal to the Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public
good.8 The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority. 9
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not only on the more than half a million motorists who use the tollways everyday, but more so
on the governments effort to raise revenue for funding various projects and for reducing budgetary deficits.
To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief both to the tax-paying public and the government. A belated
declaration of nullity of the BIR action would make any attempt to refund to the motorists what they paid an administrative nightmare with no solution. Consequently, it is not only the right, but
the duty of the Court to take cognizance of and resolve the issues that the petition raises.
Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements when the legal questions to be resolved are of
great importance to the public. The same may be said of the requirement of locus standi which is a mere procedural requisite. 10

B. On the Substantive Issues:


One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed, and collected, according to Section 108, on the gross receipts derived from the sale or
exchange of services as well as from the use or lease of properties. The third paragraph of Section 108 defines "sale or exchange of services" as follows:
The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses,
pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines;
sales of electricity by generation companies, transmission, and distribution companies; services of franchise grantees of electric utilities, telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 119 of this Code and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity
and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. (Underscoring supplied)
It is plain from the above that the law imposes VAT on "all kinds of services" rendered in the Philippines for a fee, including those specified in the list. The enumeration of affected services is
not exclusive.11 By qualifying "services" with the words "all kinds," Congress has given the term "services" an all-encompassing meaning. The listing of specific services are intended to
illustrate how pervasive and broad is the VATs reach rather than establish concrete limits to its application. Thus, every activity that can be imagined as a form of "service" rendered for a fee
should be deemed included unless some provision of law especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render.
Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators expense. Tollways serve as alternatives to regular public highways that
meander through populated areas and branch out to local roads. Traffic in the regular public highways is for this reason slow-moving. In consideration for constructing tollways at their expense,
the operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover their expenses and earn reasonable returns from their
investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the tollway facilities over which the operator enjoys private proprietary rights 12 that its contract
and the law recognize. In this sense, the tollway operator is no different from the following service providers under Section 108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to
their transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines.

It does not help petitioners cause that Section 108 subjects to VAT "all kinds of services" rendered for a fee "regardless of whether or not the performance thereof calls for the exercise or use
of the physical or mental faculties." This means that "services" to be subject to VAT need not fall under the traditional concept of services, the personal or professional kinds that require the use
of human knowledge and skills.
And not only do tollway operators come under the broad term "all kinds of services," they also come under the specific class described in Section 108 as "all other franchise grantees" who are
subject to VAT, "except those under Section 119 of this Code."
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television broadcasting companies with gross annual incomes of less than P10
million and gas and water utilities) that Section 11913 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of
public concern.14
Petitioners of course contend that tollway operators cannot be considered "franchise grantees" under Section 108 since they do not hold legislative franchises. But nothing in Section 108
indicates that the "franchise grantees" it speaks of are those who hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for making a distinction between
franchises granted by Congress and franchises granted by some other government agency. The latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by
local authorities, as agents of the state, constitute as much a legislative franchise as though the grant had been made by Congress itself. 15 The term "franchise" has been broadly construed as
referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has
been delegated by Congress.16
Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities
of public consequence that necessarily require a special grant of authority from the state. Indeed, Congress granted special franchise for the operation of tollways to the Philippine National
Construction Company, the former tollway concessionaire for the North and South Luzon Expressways. Apart from Congress, tollway franchises may also be granted by the TRB, pursuant to
the exercise of its delegated powers under P.D. 1112.17 The franchise in this case is evidenced by a "Toll Operation Certificate." 18
Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the term "sale of services" under Section 108 of the Code. But, again,
nothing in Section 108 supports this contention. The reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and broadcasting companies in its list of
VAT-covered businesses, Section 108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a public nature such as public utilities and the collection
of tolls or charges for its use or service is a franchise. 19
Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional deliberations of the would-be law. As the Court said in South African
Airways v. Commissioner of Internal Revenue,20 "statements made by individual members of Congress in the consideration of a bill do not necessarily reflect the sense of that body and are,
consequently, not controlling in the interpretation of law." The congressional will is ultimately determined by the language of the law that the lawmakers voted on. Consequently, the meaning
and intention of the law must first be sought "in the words of the statute itself, read and considered in their natural, ordinary, commonly accepted and most obvious significations, according to
good and approved usage and without resorting to forced or subtle construction."
Two. Petitioners argue that a toll fee is a "users tax" and to impose VAT on toll fees is tantamount to taxing a tax. 21Actually, petitioners base this argument on the following discussion in Manila
International Airport Authority (MIAA) v. Court of Appeals: 22
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by
the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA
Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.
x x x The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a
more efficient and equitable manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is for public dominion or not. Article 420 of the Civil Code defines property of public dominion as
"one intended for public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of
the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character
of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for public use. Such fees are often termed users tax. This means taxing those among the public who actually use a public
facility instead of taxing all the public including those who never use the particular public facility. A users tax is more equitable a principle of taxation mandated in the 1987
Constitution."23 (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to a "users tax" must also pertain to tollway fees. But the main issue in the MIAA case was whether or not
Paraaque City could sell airport lands and buildings under MIAA administration at public auction to satisfy unpaid real estate taxes. Since local governments have no power to tax the national
government, the Court held that the City could not proceed with the auction sale. MIAA forms part of the national government although not integrated in the department framework." 24 Thus, its
airport lands and buildings are properties of public dominion beyond the commerce of man under Article 420(1) 25of the Civil Code and could not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to establish a rule that tollway fees are users tax, but to make the point that airport lands and
buildings are properties of public dominion and that the collection of terminal fees for their use does not make them private properties. Tollway fees are not taxes. Indeed, they are not
assessed and collected by the BIR and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a users tax, collectible from motorists, for the construction and maintenance of certain roadways. The tax in such a
case goes directly to the government for the replenishment of resources it spends for the roadways. This is not the case here. What the government seeks to tax here are fees collected from
tollways that are constructed, maintained, and operated by private tollway operators at their own expense under the build, operate, and transfer scheme that the government has adopted for
expressways.26 Except for a fraction given to the government, the toll fees essentially end up as earnings of the tollway operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures.27 Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction,
maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not
government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government
or private individuals or entities, as an attribute of ownership. 28
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax
and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not
the sellers liability but merely the burden of the VAT.29
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of VAT paid by the former is added to the selling price. Once shifted,
the VAT ceases to be a tax30 and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the Code, 31 VAT is imposed on any person who, in the course
of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the
burden of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a "users tax." VAT is assessed against the tollway operators gross receipts and not
necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply
becomes part of the toll fees that one has to pay in order to use the tollways. 32

Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private investors in the tollway projects. She will neither be prejudiced by nor be
affected by the alleged diminution in return of investments that may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in and right
to recover investments solely belongs to the private tollway investors.
Besides, her allegation that the private investors rate of recovery will be adversely affected by imposing VAT on tollway operations is purely speculative. Equally presumptuous is her assertion
that a stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are manifestly conjectural. Neither
can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic grounds.
Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway operations impractical and incapable of implementation. They cite the fact
that, in order to claim input VAT, the name, address and tax identification number of the tollway user must be indicated in the VAT receipt or invoice. The manner by which the BIR intends to
implement the VAT by rounding off the toll rate and putting any excess collection in an escrow account is also illegal, while the alternative of giving "change" to thousands of motorists in
order to meet the exact toll rate would be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not administratively feasible. 33
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively administered and enforced with the least
inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid "except to the extent that specific constitutional or statutory limitations are
impaired."34 Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or
the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go about it, 35 the facts pertaining to the
matter are not sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on tollway operations will be enforced must first be addressed to the BIR on
whom the task of implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIRs discretion on the matter, absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll companies to record an accumulated input VAT of zero balance in their books as of
August 16, 2010, the date when the VAT imposition was supposed to take effect. The issuance allegedly violates Section 111(A) 36 of the Code which grants first time VAT payers a transitional
input VAT of 2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with tollway operators who have been assessed VAT as early as 2005, but failed to charge
VAT-inclusive toll fees which by now can no longer be collected. The tollway operators agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past due VAT
liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway operators who have not questioned the circulars validity. They are thus the ones who have a right to
challenge the circular in a direct and proper action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of
the Code clearly states that services of all other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among the
franchise grantees subject to franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have been well for the law to clearly say so. Tax exemptions must be justified
by clear statutory grant and based on language in the law too plain to be mistaken. 37 But as the law is written, no such exemption obtains for tollway operators. The Court is thus duty-bound to
simply apply the law as it is found.1avvphi1
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. The Courts role is to merely uphold this legislative policy, as reflected first
and foremost in the language of the tax statute. Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress. The Court has
no discretion on the matter but simply applies the law.

The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only now, however, that the executive has
earnestly pursued the VAT imposition against tollway operators. The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws.
Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of Internal Revenues motion for reconsideration of its August 24, 2010 resolution, DISMISSES the
petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition for lack of merit, and SETS ASIDE the Courts temporary restraining order dated August 13, 2010.
SO ORDERED.

G.R. No. 183880

January 20, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,


vs.
TOLEDO POWER, INC., Respondent.
DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal of the Court of Tax Appeals (CTA) En Banc Decision 1 dated May 7, 2008, and
Resolution2 dated July 18, 2008.
The pertinent facts, as narrated by the CT A First Division, are as follows:
Petitioner (herein respondent Toledo Power, Inc.) is a general partnership duly organized and existing under Philippine laws, with principal office at Sangi, Toledo City, Cebu. It is principally
engaged in the business of power generation and subsequent sale thereof to the National Power Corporation (NPC), Cebu Electric Cooperative III (CEBECO), Atlas Consolidated Mining and
Development Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development, Inc., and is registered with the Bureau of Internal Revenue (BIR) as a Value
Added Tax taxpayer in accordance with Section 236 of the National Internal Revenue Code (NIRC) with Tax Identification No. 003-883-626-VAT and BIR Certificate of Registration bearing
RDO Control No. 94-083-000300.
On June 20, 2002, petitioner filed an application with the Energy Regulatory Commission (ERC) for the issuance of a Certificate of Compliance pursuant to the Implementing Rules and
Regulations of R.A. 9136, otherwise known as the "Electric Power Industry Reform Act of 2007" (EPIRA).
On October 25, 2001, petitioner filed with the BIR Revenue District Office (RDO) No. 83 at Toledo City, Province of Cebu, its Quarterly VAT Return for the third quarter of 2001, declaring
among others, the following:
Zero-rated Sales/Receipts
Taxable Sales-Sale of Scrap/Others
Output Tax

P 143,000,032.37
378,651.74
34,422.89

Less: Input Tax


On Domestic Purchases

4,765,458.58

On Importation of Goods

1,242,792.00

Total Available Input Tax

6,008,250.58

Excess Input Tax & Overpayment

P 5,973,827.69

However, an amended Quarterly VAT Return for the same quarter of 2001was filed on November 22, 2001. The amended return shows unutilized input VAT credits of P5,909,588.96 arising
from petitioners taxable purchases for the third quarter of 2001 and the following other information:
Zero-rated Sales/Receipts

P 143,000,032.37

Taxable Sales-Sale of Scrap/Others


Output Tax

378,651.74
34,422.89

Less: Input Tax


On Domestic Purchases

4,718,099.85

On Importation of Goods

1,225,912.00

Total Available Input Tax

5,944,011.85

Excess Input Tax & Overpayment

P 5,909,588.96

Thus, for the third quarter of 2001, petitioner allegedly has unutilized input VAT in the total amount ofP5,909,588.96 on its domestic purchase of taxable goods and services and importation of
goods, which purchases and importations are all attributable to its zero-rated sale of power generation services to NPC, CEBECO, Atlas Consolidated Mining and Development Corporation,
Atlas Fertilizer Corporation and Cebu Industrial Park Development, Inc. Said input VAT of P5,909,588.96 paid by petitioner on its domestic purchase of goods and services for the third quarter
of 2001 allegedly remained unutilized against output VAT liability in said period or even in subsequent matters.
On January 25, 2002, petitioner filed with the BIR RDO No. 83 at Toledo City, Province of Cebu, its Quarterly VAT Return for the fourth quarter of 2001 declaring, among others, the following:
Zero-rated Sales/Receipts
Taxable Sales-Sale of Scrap/Others
Output Tax

P 127,259,720.44
309,697.50
28,154.33

Less: Input Tax


On Domestic Purchases

1,374,608.64

On Importation of Goods

1,873,327.00

Total Available Input Tax

3,247,935.64

Excess Input Tax & Overpayment

P 3,219,781.31

Thus, petitioner allegedly had an excess input VAT credits of P3,219,781.31 for the fourth quarter of 2001 which remained unutilized against output VAT liability in said period or even in the
subsequent quarters.
For the third and fourth quarters of 2001, petitioner incurred and accumulated input VAT from its domestic purchase of goods and services, which are all attributable to its zero-rated sales of
power generation services to NPC, CEBECO, Atlas Consolidated Mining and Development
Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development Inc., in the total amount ofP9,129,370.27. Said excess and unutilized input VAT was allegedly not utilized
against any output VAT liability in the subsequent quarters nor carried over to the succeeding taxable quarters.
On September 30, 2003, pursuant to the procedure prescribed in Revenue Regulations No. 7-95, as amended, petitioner filed with the BIR RDO No. 83, an administrative claim for refund or
unutilized input VAT for the third and fourth quarter of 2001 in the amounts of P5,909,588.96 and P3,219,781.31, respectively, or the aggregate amount of P9,129,370.27.
Respondent (herein petitioner Commissioner of Internal Revenue) has not ruled upon petitioners administrative claim and in order to preserve its right to file a judicial claim for the refund or
issuance of a tax credit certificate of its unutilized input VAT, petitioner filed a Petition for

Review to suspend the running of the two-year prescriptive period under Section 112(D) of the 1997 NIRC and Section 4.106-2(c) of Revenue Regulations No. 7-95, as amended. On October
24, 2003, petitioner filed a Petition for Review for the refund or issuance of a tax credit certificate in the amount of P5,909,588.96 for the third quarter of 2001, docketed as CTA Case No. 6805
and, on January 22, 2004, filed another Petition for Review for the refund or issuance of tax credit certificate in the amount of P3,219,781.31 for the fourth quarter of 2001, docketed as CTA
Case No. 6851, both for its unutilized input VAT paid by petitioner on its domestic purchases of goods and services and importation of goods attributable to zero-rated sales.
On January 30, 2004, petitioner filed a Motion for Consolidation CTA Case Nos. 6805 and 6851, since these cases involve the same parties, same facts and issues. The said Motion was
granted in open court on February 27, 2004 and confirmed in a Resolution dated March 8, 2004.
xxxx
After presenting its testimonial and documentary evidence, petitioner formally offered its evidence on February 16, 2006. On March 24, 2006, this Court promulgated a Resolution admitting all
the exhibits offered by petitioner. Respondent, on the other hand, failed to adduce any evidence.
In a Resolution dated July 6, 2006, this consolidated case was ordered submitted for decision with only petitioners Memorandum, as respondent failed to file one within the period given by the
Court.3
Acting on the petition, the CTA First Division issued a Decision dated May 17, 2007 partially granting Toledo Power, Inc.s (TPI) refund claim or issuance of tax credit certificate. Pertinent
portions of the Decision read:
In sum, petitioner was able to show its entitlement to the refund or issuance of tax credit certificate in the amount ofP8,553,050.44 computed as follows:
Total Available Input VAT
Less: Disallowed Input VAT
(P20,696.34+P52,363.64+P277,207.50)
Substantiated available input VAT
Less: Output VAT
Substantiated Unutilized Input VAT

P 9,191,947.49
350,267.48
P 8,841,680.01
62,577.22
P 8,779,102.79

Multiply by the ratio of substantiated


zero-rated sales to the total zero-rated
sales
Substantiated zero-rated sales

263,300,858.02

Total zero-rated sales

270,259,752.81

Refundable Input VAT

P 8,553,050.44

IN VIEW OF THE FOREGOING, the Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED to refund or to issue a tax credit certificate in favor of petitioner in the
reduced amount ofP8,553,050.44 representing the substantiated unutilized input VAT for the third and fourth quarters of 2001.
SO ORDERED.4
The Commissioner of Internal Revenue (CIR), thereafter, filed a Motion for Reconsideration against said Decision. However, the same was denied in a Resolution dated October 15, 2007.

On appeal to the CTA En Banc, the CIR argued that TPI failed to comply with the invoicing requirements to prove entitlement to the refund or issuance of tax credit certificate. In addition, he
challenged the jurisdiction of the CTA First Division to entertain respondents petition for review for failure on its part to comply with the provisions of Section 112 (C) of the Tax Code.
In a Decision dated May 7, 2008, the CTA En Banc affirmed with modification the First Divisions assailed decision. It held
x x x after re-examination of the records of this case, out of the alleged Zero-rated sales amounting toP270,259,752.81, only the amount of P248,989,191.87 is fully substantiated. Therefore,
respondent is entitled to the refund or issuance of tax credit certificate in the amount of P8,088,151.07 computed as follows:
Total Available Input VAT
Less: Disallowed Input VAT
(P20,696.34+P52,363.64+P277,207.50)
Substantiated available input VAT
Less: Output VAT
Substantiated Unutilized Input VAT

P 9,191,947.49
350,267.48
P 8,841,680.01
62,577.22
P 8,779,102.79

Multiply by the ratio of substantiated


zero-rated sales to the total zero-rated
sales
Substantiated zero-rated sales

248,989,191.87

Total zero-rated sales

270,259,752.81

Refundable Input VAT

P 8,088,151.07

WHEREFORE, premises considered, the Petition for Review En Banc is DENIED for lack of merit. Accordingly, the Decision dated May 17, 2007 and Resolution dated October 15, 2007 are
AFFIRMED with MODIFICATION. Petitioner is hereby ORDERED TO REFUND to respondent the sum of EIGHT MILLION EIGHTY-EIGHT THOUSAND ONE HUNDRED FIFTY-ONE PESOS
AND SEVEN CENTAVOS (P8,088,151.07) only for the third and fourth quarters of taxable year 2001.
SO ORDERED.5
In a Resolution dated July 18, 2008, the CTA En Banc denied the CIRs motion for reconsideration.
Undaunted by the adverse ruling of the CTA, the CIR now seeks recourse to this Court on the following ground:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT IS LIABLE TO REFUND PETITIONER FOR ALLEGED OVERPAYMENT OF VAT.6
In essence, two issues must be addressed to determine whether TPI is indeed entitled to its claim for refund or issuance of tax credit certificate: (1) whether TPI complied with the 120+30 day
rule under Section 112 (C) of the Tax Code, and (2) whether TPI sufficiently complied with the invoicing requirements under the Tax Code.
Let us discuss the issues in seriatim.
First, it must be emphasized that to validly claim a refund or tax credit of input tax, compliance with the 120+30 day rule under Section 112 of the Tax Code is mandatory.
Pertinent portions of Section 112 of the Tax Code, as amended by Republic Act No. 9337, 7 state:

SEC. 112. Refunds or Tax Credits of Input Tax.


(A) Zero-rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that
such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due
or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person
making sales that are zero-rated under Section 108(B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales.
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals.
Section 112 decrees that a VAT-registered person, whose sales are zero-rated or effectively zero-rated, may apply for the issuance of a tax credit or refund creditable input tax due or paid
attributable to such sales within two years after the close of the taxable quarter when the sales were made. From the date of submission of complete documents in support of its application,
the CIR has 120 days to decide whether or not to grant the claim for refund or issuance of tax credit certificate. In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the CIR to act on the application within the given period, the taxpayer may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120day period, appeal with the CTA the decision or inaction of the CIR.
Recently, in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power Corporation, 8 (San Roque), the Court confirmed the mandatory and jurisdictional nature of the
120+30 day rule. It ratiocinated as follows:
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the law. Section 112 (C) expressly grants the Commissioner 120 days within
which to decide the taxpayers claim. The law is clear, plain and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents." Following the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain and
unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioners decision within the 120-day mandatory and jurisdictional period. The CTA will have
no jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In San Roques case, it filed its petition with the CTA a mere 13
days after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one-hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
This law is clear, plain, and unequivocal.1avvphi1 Following the well-settled verba legis doctrine, this law should be applied exactly as worded since it is clear, plain and unequivocal. As this
law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioners decision, or if the Commissioner does not act
on the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.
xxxx
When Section 112 (C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period,
appeal the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30 day periods optional just because the law uses the word "may." The word "may"
simply means that the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day

period. Certainly by no stretch of the imagination can the word "may" be construed as making the 120+30 day periods optional, allowing the taxpayer to file a judicial claim one day after filing
the administrative claim with the Commissioner.
The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioners decision if the two-year prescriptive period is about to expire, cannot apply because that rule
was adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT System the taxpayer will always have 30
days to file the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer, the
taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT
System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary for such a claim to prosper, whether before,
during, or after the effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was
adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional. 9
In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows:
(1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made.
(2) The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax
credit certificate. The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the
120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIRs decision denying the administrative claim or from the expiration of the 120-day period
without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an
exception to the mandatory and jurisdictional 120+30 day periods.10
Here, TPI filed its third and fourth quarterly VAT returns for 2001 on October 25, 2001 and January 25, 2002, respectively. It then filed an administrative claim for refund of its unutilized input
VAT for the third and fourth quarters of 2001 on September 30, 2003. Thus, the CIR had 120 days or until January 28, 2004, after the submission of TPIs administrative claim and complete
documents in support of its application, within which to decide on its claim. Then, it is only after the expiration of the 120-day period, if there is inaction on the part of the CIR, where TPI may
elevate its claim with the CTA within 30 days.
In the present case, however, it appears that TPIs judicial claims for refund of its unutilized input VAT covering the third and fourth quarters of 2001 were prematurely filed on October 24, 2003
and January 22, 2004, respectively.
However, although TPIs judicial claim for the fourth quarter of 2001 has been filed prematurely, the most recent pronouncements of the Court provide for a window wherein the same may be
entertained.
As held in the San Roque ponencia, strict compliance with the 120+30 day mandatory and jurisdictional periods is not necessary when the judicial claims are filed between December 10, 2003
(issuance of BIR Ruling No. DA-489-03 which states that the taxpayer need not wait for the 120-day period to expire before it could seek judicial relief) to October 6, 2010 (promulgation of the
Aichi doctrine).
Clearly, therefore, TPIs refund claim of unutilized input VAT for the third quarter of 2001 was denied for being prematurely filed with the CTA, while its refund claim of unutilized input VAT for
the fourth quarter of 2001 may be entertained since it falls within the exception provided in the Courts most recent rulings.
With that settled, we now resolve the issue of whether TPI sufficiently complied with the invoicing requirements under the Tax Code with respect to the fourth quarter of 2001.
Section 113 (A), in relation to Section 237 of the Tax Code, provides:

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.


(A) Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or receipt.1wphi1 In addition to the information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayers identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes value-added tax.
xxxx
SEC. 237. Issuance of Receipts or Sales of Commercial Invoices. All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered
valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost
and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of
the amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as
rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided,
further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipts shall further show the Taxpayer Identification Number (TIN) of
the purchaser.
Section 4.108-1 of Revenue Regulations No. 7-95 states:
Section 4.108-1. Invoicing Requirements All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial
invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.11
In the present case, we agree with the CTAs findings that the words "zero-rated" appeared on the VAT invoices/official receipts presented by the TPI in support of its refund claim. Although the
same was merely stamped and not pre-printed, the same is sufficient compliance with the law, since the imprinting of the word "zero-rated" was required merely to distinguish sales subject to
10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other VAT provisions of the Tax
Code.
Moreover, it is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated exclusively to the resolution of tax
problems, has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority.12
In Barcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue, 13 the Court held that it accords the findings of fact by the CTA with the highest respect. It ruled that factual findings
made by the CTA can only be disturbed on appeal if they are supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any
clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect. 14

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The Commissioner of Internal Revenue is hereby ORDERED to refund or issue tax credit certificate in favor
of Toledo Power, Inc. only for the fourth quarter of 2001. This case is hereby REMANDED to the Court of Tax Appeals for the proper computation of the refundable amount representing
unutilized input VAT for the fourth quarter of 2001.
SO ORDERED.

G.R. No. 171307

August 28, 2013

J. R. A. PHILIPPINES, INC., Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
PERLAS--BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated September 20, 2005 and Resolution3dated January 27, 2006 of the Court of Tax Appeals (CTA) En Banc in C.T.A.E.B.
No. 35 which denial petitioner J.R.A. Philippines, Inc.s (petitioner) claim for refund of its unutilized input value-added tax (VAT) for the calendar year 1999 in the amount of P7,786,614.04.
The Facts
Petitioner is a VAT and Philippine Economic Zone Authority (PEZA) registered corporation engaged in the manufacture and export of ready-to-wear items. 4 It claimed to have paid the
aggregate sum of P7,786,614.04 as excess input VAT for the calendar year 1999, which amount it purportedly used to purchase domestic goods and services directly attributable to its zerorated export sales.5 Alleging that its input VAT remained unutilized as it has not engaged in any business activity or transaction for which it may be liable for output VAT, petitioner filed four
separate applications for tax refund with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance. 6 When the same was not acted upon by
respondent Commissioner of Internal Revenue (CIR) and in order to toll the two-year prescriptive period under Section 229 7 of Republic Act No. (RA) 8424,8 as amended, otherwise known
as the National Internal Revenue Code (NIRC) petitioner filed a petition for review 9 before the CTA, docketed as CTA Case No. 6249.
In its Answer,10 the CIR contended that since petitioner is registered with the PEZA, its business was not subject to VAT as provided under Section 24 11 of RA 7916,12 otherwise known as "The
Special Economic Zone Act of 1995," in relation to Section 109(q)13 of the NIRC. Hence, it is not entitled to credit its input VAT under Section 4.103-1 of Revenue Regulations No. (RR) 795.14 Besides, petitioners alleged unutilized input VAT for 1999 was not properly documented. 15
The Proceedings Before the CTA
On March 16, 2004, the CTA Division16 rendered a Decision17 denying petitioners claim for input VAT refund on the ground that all of its export sales invoices: (a) have no Bureau of Internal
Revenue (BIR) Permit to Print; (b) did not contain its Taxpayers Identification Number-VAT (TIN-V); and (c) the word "zero-rated" was not imprinted thereon in violation of Section 113(A)18 in
relation to Section 238 of the NIRC and Section 4.108-1 of RR 7-95. 19Having thus failed to comply with the invoicing requirements, petitioners evidence was deemed insufficient to establish its
zero-rated export sales for input VAT refund purposes.20
Dissatisfied, petitioner filed a motion for reconsideration21 which was, however, denied in a Resolution22 dated September 20, 2004.
Unperturbed, petitioner elevated the matter before the CTA En Banc, arguing that the export sales invoices are not the sole basis to prove export sales. 23 In this accord, it posited that its export
sales should be deemed properly documented and substantiated by the bills of lading, airway bills, and export documents 24 as these documents are the best evidence to prove the actual
exportation of the goods.25
On September 20, 2005, the CTA En Banc issued the assailed Decision,26 denying petitioners claim for input VAT refund. It ruled that petitioner failed to establish the fact that its 1999 export
sales were "zero-rated" for VAT purposes as it failed to comply with the substantiation requirements under Section 113(A) in relation to Section 238 of the NIRC, as well as Section 4.108-1 of
RR 7-95.27 Further, it affirmed the earlier finding that petitioners export sales invoices had no BIR Permit to Print and did not contain its TIN-V and the words "zero-rated." As such, the
documents it submitted were insufficient to prove the zero-rated export sales of the goods for input VAT refund purposes. 28
Petitioner moved for reconsideration which was, similarly, denied in a Resolution dated January 27, 2006. 29Hence, the instant petition.

The Issue Before the Court


The sole issue in this case is whether or not the CTA erred in denying petitioners claim for tax refund.
The Courts Ruling
The petition lacks merit.
Case law dictates that in a claim for tax refund or tax credit, the applicant must prove not only entitlement to the claim but also compliance with all the documentary and evidentiary
requirements therefor.30 Section 110(A)(1)31 of the NIRC provides that creditable input taxes must be evidenced by a VAT invoice or official receipt, which must, in turn, comply with Sections
23732 and 23833 of the same law, as well as Section 4.108.134 of RR 7-95. The foregoing provisions require, inter alia, that an invoice must reflect, as required by law: (a) the BIR Permit to Print;
(b) the TIN-V of the purchaser; and (c) the word "zero-rated" imprinted thereon. In this relation, failure to comply with the said invoicing requirements provides sufficient ground to deny a claim
for tax refund or tax credit.35
In this case, records show that all of the export sales invoices presented by petitioner not only lack the word "zero-rated" but also failed to reflect its BIR Permit to Print as well as its TIN-V.
Thus, it cannot be gainsaid that it failed to comply with the above-stated invoicing requirements, thereby rendering improper its claim for tax refund. Clearly, compliance with all the VAT
invoicing requirements is required to able to file a claim for input taxes attributable to zero-rated sales. As held in Microsoft Philippines, Inc. v. CIR: 36
The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue regulations are clear.1wphi1 A VAT-registered taxpayer is required to comply with all the VAT
invoicing requirements to be able to file for a claim for input taxes on domestic purchase for goods or services attributable to zero-rated sales. A "VAT invoice" is an invoice that meets the
requirements of Section 4.108-1 of RR 7-95. Contrary to Microsofts claim. RR-7-95 expressly states that "All purchases covered by invoice other than a VAT invoice shall not give rise to any
input tax. Microsofts invoice, lacking the word "zero-rated," is not a "VAT invoice," and thus cannot give rise to any input tax. 37 (Emphasis supplied)
All told, the CTA committed no reversible error in denying petitioners refund claim.
WHEREFORE, the petition is DENIED. Accordingly, the Decision dated September 20, 2005 and Resolution dated January 27, 2006 of the Court of Tax Appeals En Banc in C.T.A. E.B. No. 35
are hereby AFFIRMED.
SO ORDERED.